PioneerPXD Natural Resources announced Thursday night that it will acquire DoublePoint Energy for $6.4 billion. The contract covers 100,000 acres of land in the heart of the Permian Basin, currently producing nearly 100,000 barrels per day.
“On the ground and in the field, this makes incredible sense,” said Cody Campbell, DoublePoint co-CEO. The site, located in the Midland Basin portion of the Great Permian Basin, is adjacent to many of Pioneer's existing properties, allowing Pioneer to utilize the same pipeline and water system that Pioneer has already invested in. Now you can design longer horizontal wells from fewer drilling pads. Mr. Campbell, 39, said he will continue to own the hundreds of millions of dollars in Pioneer stock he will receive in the deal. “We spoke to a number of companies and it was well known that we had high-quality assets.”
Pioneer said it intended to extract $175 million annually in synergies and paid a premium for a good fit. The deal terms reflect a rough valuation of about $40,000 per acre for undeveloped land, in addition to $30,000 per flowing barrel of current production, compared to recent deals. Then it's expensive.
John Sellers, DoublePoint Co-Founder, 2018.
© 2018 Bloomberg Finance LP
This is the second major acquisition Pioneer CEO Scott Sheffield has made in recent months. Back in November, Pioneer acquired another Permian pure play, Parsley Energy, for $7.6 billion. Incidentally, Parsley was founded in 2008 by Mr. Sheffield's son, Brian.
In the Double Point deal, co-chief executives Campbell Sellers and John Sellers will invest $1 billion in cash and 27.2 million shares of Pioneer stock (11% stake) with Apollo, Quantum, GSO and Magnetar. Distribution with private equity partners.
Ironically, Campbell & Sellers sold its previous 70,000-acre Double Eagle Energy to Parsley Energy in 2017 for $2.8 billion, half cash and half stock.
The companies likely made $400 million from the sale to Parsley, perhaps double what they got from Pioneer, which closed yesterday at $164.60 (market cap $36 billion).
For Campbell and Sellers, also 39, it was an unlikely success story. Now based in Fort Worth, they met in middle school and went on to play football at Canyon High School and Texas Tech University. Cody was good enough to sign with the Indianapolis Colts, but that dream ended when he tore his pectoral muscle. Around 2006, the real estate boom reached its peak and young people entered the real estate business. Starting with nothing, his first venture was to buy a meadow outside Lubbock, invest in sewer and electricity, and sell it to home builders. When real estate crashed in 2009, they got into oil and gas and realized that the business of acquiring and flipping shale land was a lot like real estate. They acquired some oil fields in the Haynesville Shale operation in Louisiana, and then in Oklahoma, they gave Aubrey McClendon, the wildcat billionaire (who died in 2016) who founded Chesapeake Energy CHK, a $225 million deal. I sold the package.
Intersected region of the Permian Basin.
Courtesy of Pioneer.
Campbell attributes their superiority in the oil game to hard work, “divine providence,” and paying more than other companies to get the best ace sage available. He says this is because he was not afraid of. “You have to be at the core of the core,” Campbell says. “We don't need to do any expansion or fringe. It has to be an area where the break-even point is really low.” He said the Double Eagle estate is generating strong cash flow at current prices and has no debt. It is said that there are few.
Gone are the early days of the shale boom, when companies were drilling far beyond their cash flow. “The industry has matured. Everyone is disciplined,” says Campbell, who likes Pioneer's low leverage, variable dividend policy. Someday, he and Sellers will launch a new venture, Double Eagle Holding Company. But for now, they're motivated to stay put and work with Pioneer's engineers to squeeze as much oil out of the field as possible. “We know the assets at a detailed level.”
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